Strayer FIN534 Week 7 Homework Assignment Chapter 12

FIN 534 Week 7 Homework
Assignment Chapter 12
1. F. Marston, Inc. has
developed a forecasting model to estimate its AFN for the upcoming year. All
else being equal, which of the following factors is most likely to lead to an
increase of the additional funds needed (AFN)?
a. A switch to a just-in-time inventory
system and outsourcing production.
b. The company reduces its
dividend payout ratio.
c. The company switches its
materials purchases to a supplier that sells on terms of 1/5, net 90, from a
supplier whose terms are 3/15, net 35.
d. The company discovers that it
has excess capacity in its fixed assets.
e. A sharp increase in its
forecasted sales.
2. The term “additional funds
needed (AFN)” is generally defined as follows:
a. Funds that a firm must raise
externally from non-spontaneous sources, i.e., by borrowing or by selling new
stock to support operations.
b. The amount of assets required
per dollar of sales.
c. The amount of internally
generated cash in a given year minus the amount of cash needed to acquire the
new assets needed to support growth.
d. A forecasting approach in
which the forecasted percentage of sales for each balance sheet account is held
constant.
e. Funds that are obtained
automatically from routine business transactions.
3. The capital intensity ratio is
generally defined as follows:
a. The percentage of liabilities
that increase spontaneously as a percentage of sales.
b. The ratio of sales to current
assets.
c. The ratio of current assets to
sales.
d. The amount of assets required
per dollar of sales, or A0*/S0.
e. Sales divided by total assets,
i.e., the total assets turnover ratio.
4. Which of the following is NOT
one of the steps taken in the financial planning process?
a. Monitor operations after
implementing the plan to spot any deviations and then take corrective actions.
b. Determine the amount of
capital that will be needed to support the plan.
c. Develop a set of forecasted
financial statements under alternative versions of the operating plan in order
to analyze the effects of different operating procedures on projected profits
and financial ratios.
d. Consult with key competitors
about the optimal set of prices to charge, i.e., the prices that will maximize
profits for our firm and its competitors.
e. Forecast the funds that will
be generated internally. If internal funds are insufficient to cover the
required new investment, then identify sources from which the required external
capital can be raised.
5. Spontaneous funds are
generally defined as follows:
a. A forecasting approach in
which the forecasted percentage of sales for each item is held constant.
b. Funds that a firm must raise
externally through short-term or long-term borrowing and/or by selling new
common or preferred stock.
c. Funds that arise out of normal
business operations from its suppliers, employees, and the government, and they
include immediate increases in accounts payable, accrued wages, and accrued
taxes.
d. The amount of cash raised in a
given year minus the amount of cash needed to finance the additional capital
expenditures and working capital needed to support the firm’s growth.